Treasury Battles “Myth” that CFPB Burdens Small Banks

The Consumer Financial Protection Bureau will not burden small banks, insists the Treasury in a series of blog posts debunking CFPB “myths,” some of which were brought up by the American Bankers Association (ABA) in a July Senate hearing.

While some say Wall Street reform will hurt community banks, this claim is “dubious” given the Independent Community Bankers’ support for Dodd-Frank’s enactment, says Deputy Treasury Secretary Neal Wolin.

“Wall Street Reform helps level the playing field between large banks and small ones, helping to eliminate distortions that previously favored the biggest banks that held the most risk,” he said in the blog post.


However, many bankers are worried about the scope of changes the CFPB may have in store.

“At risk is the entire body of rules that has governed the development, design, sales, marketing, and disclosure of all financial products; they are subject to change under the Bureau, and could change dramatically in many instances,” said Albert C. Kelly, Jr., of the ABA in his testimony before the Senate Committee on Banking, Housing, and Urban Affairs.

Uncertainty can cause firms to pull back from developing new products and delivery systems, and makes banks think twice about various types of lending if they’re not sure what the rules will be when they try to collect the loan a few years out, he continued.

Small and large banks alike will be affected by regulations, said Kelly, adding his desire to “dispel a myth that continues to color the debate on the Bureau… that community banks like mine are exempt from the new Bureau.”

They’re not, he said, as all banks will be required to comply with the CFPB’s rules and regulations.

However, Wolin said community banks won’t have to deal with the same levels of regulatory compliance as giant firms.

There are a number of areas where the Dodd-Frank Act holds big banks to stricter standards than their smaller counterparts, he said in the blog post, including tougher capital and liquidity requirements to reduce lending risks and a larger share of the cost of deposit insurance protection, which reflects the greater risk they pose to the financial system.

He also addressed Kelly’s suggestion during the Senate hearing that the CFPB keep a closer eye on non-bank lenders.

The Dodd-Frank Act gives the CFPB the power to examine nonbank financial service providers, such as payday lenders and independent mortgage brokers, said the deputy Treasury secretary, and this ability will help the Bureau prohibit “unfair, deceptive, and abusive acts or practices that hurt small banks and Americans across the country.”

The reform also helps makes sure small banks aren’t subject to “subject to excessive supervisory burdens,” according to Wolin, as community bank regulators will be responsible for enforcing one set of rules issued by the CFPB.

“Reform is helping put community banks on a more equal footing and is strengthening—not weakening—their essential role in our financial system,” he said.

View the ABA testimony here, or check out the Treasury blog.

Written by Alyssa Gerace

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  • Alyssa,
     “…said the Treasury secretary.” 

    Neal Wolin is a deputy secretary of the Treasury but in no way, the Secretary himself.  That job still belongs to Secretary of the Treasury, Timothy Franz Geithner.

  • While many saw positive things in Dodd-Frank, the CFPB in its present structure is a different story.  It is not how the CFPB was imagined in the bill that is at issue; it is how it has been put together and how it proposes to operate which are at issue.  Neal shows his skill as a former CIA executive in deflecting the issue and obscuring it with the whole issue of Dodd-Frank which is without doubt a brilliant strategy.
    To say that regulations in some areas will be more extensive for bigger banks than others is so obtuse that it does not merit much of a response at all.  The real question is whether the regulatory changes are commensurate to the type, size, and business operations of the related banks.
    Proposed law is much different than the actual governmental bodies they create.  While there are clear questions about the current need for all or any meaningful part of Dodd-Frank, there is no question that the CFPB is an overreach by its brilliant strategist Elizabeth Warren.  
    How this bureau should not be overseen by Treasury as the FBI is by the Attorney General and the IRS by Treasury, is still one of the most arrogant and blatantly irresponsible actions of the Democratic Party since Democrat Party controlled Congress approved the LBJ initiated Tonkin Bay resolution to escalate the War in Viet Nam.  Thank goodness, its results will not be nearly as detrimental on the nation as the LBJ resolution but the most extreme justifications for structuring the CFPB in the way it is are just as irrational, unfounded, and unwarranted.

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